Ben Horowitz has a great contrarian article about ‘Fat’ startups which has caused immediate reaction around twitter and the Lean Startup community. Unfortunately, his article has very little to do with the Lean Startup concept and a lot to do with reactionary CEOs flipping out about the infamous Sequoia presentation. It also has a little to do with how choosing a name is important. For the record Ben Horowitz is right, but let’s backtrack a little bit.

What is the ‘Lean’ in ‘Lean Startups’

The ‘Lean’ in ‘Lean Startups’ comes from ‘Lean Thinking‘ as used in the streamlined production process pioneered by Toyota. This process is designed to banish waste in a production process. In the specific context of the Lean Startup process, it is to ensure that if you’re going to add a feature to your product there had better be a customer there to love it.

What the ‘Lean’ in ‘Lean Startups’ is Not

‘Lean’ in this context has nothing to do with spending less money. It is about effectiveness. It is about preventing your developers writing code that will never be used. It is about making sure that when you only have only one hundred hours to spend writing code, that as many of those hundred hours as possible are spent creating features that customers actually want. Fundamentally, it is about increasing the amount of validated learning you can get out of your process. To do this might involve increasing the amount of money you spend. It may require spending more money on people who are continually testing that your hypotheses are correct on actual users.

What’s the difference?

In Ben’s article we see CEOs reacting to the Sequoia memo, which makes a lot of sense. Around the startup community it was like a meteor had hit. Guy Kawasaki said that if you weren’t paying attention to this memo then you were clueless. Any available investment money dried up overnight. What Horowitz sees in these investment pitches is CEOs trying to display their cluefulness to potential investors by preaching the ‘Low Cost’ mantra. But he’s claiming that sometimes you need to spend big. Is there a disconnect?

Where the ‘Lean Startup’ becomes a ‘Fat Startup’

The critical mission of a Lean Startup (from Eric Ries’s concept) is to get to Product-Market fit. Horowitz’s VC partner Marc Andreessen describes it as the only thing that matters. This is where the two stories link up. It’s the next stage in the same process – when you have product-market fit and there is a scalable and repeatable sales model you crank up the volume! All that validated learning turns into a method where a smaller amount of sales effort turns into a much larger amount of money. You spend to get there, and then you spend a whole lot more.

Facebook

Pumping too much money into a small start-up is unhealthy for both the company and the investor. On the other hand, Facebook has raised several hundred million dollars and is on track to produce fantastic returns for all of its investors. So what’s a start-up to do?

The difference here is one of timing. Facebook had phenomenal growth – users on college campuses all across the country were signing up at an amazing rate. That’s a pretty good indicator of product-market fit, and a different ballgame entirely. At this point the organization needs to scale to meet the demands of the market, and to do that you need money. A lot of it.

Hypergrowth Markets

Both Opsware and Facebook had product-market fit and were racing to gain a dominant position in a market where no clear leader had emerged. The decision to shoot for break-even revenue vs land-grab for market share is a strategic play at this stage. They both chose the process that Geoffrey Moore describes for capitalizing on hyper-growth markets in “Inside the Tornado“, which is a place that most startups can only dream of getting to.

Final Lesson?

Sorry Eric, “Lean Startups” is a terrible name for this movement. There’s been too much confusion with people translating “Lean” into “Spend zero money”.

I’ve been posting excerpts from any interesting links I’ve come across up at my posterous blog for the last month or so. This is mainly due to the fact that the previous system I was using has decided to no longer work after a wordpress upgrade (Wordpress strips all markup characters) and I’m too busy at the moment to dig through the unholy mess that is wordpress to fix it.

Posterous is a pretty nice system for quickly putting together a simple blog. You can create a post by sending an email, and if you link to a flickr page It’ll automatically pull out the image. Likewise with youtube videos and a dozen other services.

Here’s a rundown of some of the more interesting links from the last month:

This is an interesting perspective. While in college I would have had nothing but contempt for PR and Marketing, which I thought of as just adding noise to a perfect process. Somehow, I reasoned, if the product was good enough people would just start flocking to it. Not so unfortunately. This is a great guide to what value PR and marketing provide to a product.

A great article from Carsonified about using a cleverly designed “Thank you” process to add a more human touch to your business that makes them want to engage more. Carsonified have a very polished design process which stands out as original and eye-catching yet very human.

A few years old, but definitely worth another watch if you’ve already seen it. Andreessen is busy changing the world with his VC fund at the moment, but as one of the few people to have created not one, but two billion-dollar companies from scratch he’s someone who you want to listen to.

Fantastic article by Paul Buchheit on product focus. The message is simple – Pick two or three key things that will create a competitive advantage and do them really really well. Trying to implement every idea under the sun leads to mediocrity initially, and failure in the long run.